A fringe benefit arises when an employer makes a motor vehicle available to an employee for private use. A fringe benefit may also arise when a company makes a motor vehicle available to a shareholder that works in the company’s business. For a fringe benefit tax (FBT) liability to arise, the employer or company only needs to make the vehicle “available” for private use – the employee or shareholder-employee does not need to actually use the vehicle for private use. Allowing an employee access to a vehicle and permitting private use is sufficient for an FBT liability to arise.
An employee or shareholder-employee that is allowed to take a work vehicle home, will generally be using the vehicle for private use, regardless of the justification for doing so. For example, taking a vehicle home for “safe garaging”, or taking it home so the company post office box can be cleared on the way to work, will not usually prevent the use being private use. The business purpose is only incidental to the private benefit enjoyed of travelling to and from home.
There are a variety of exclusions from FBT for the likes of “work-related vehicles”, emergency calls and business travel, although these exclusions are a lot narrower than people think. For example, simply signwriting a vehicle does not make it a “work-related vehicle”.
While the general principles around motor vehicles and FBT are straightforward, as with much tax law, the devil is in the detail. The length of the soon to be released Inland Revenue statement on fringe benefit tax and motor vehicles that runs to close on 60 pages reflects this complexity. There is also a new option for some companies that provide motor vehicles to shareholder-employees to opt out of the FBT rules and instead, apportion their motor vehicle expenditure between deductible business use and non-deductible private use.
Contact your Findex adviser to discuss the FBT obligations in relation to motor vehicles your business provides to its employees, your options for reducing any liability, and whether the new apportionment option is appropriate for your circumstances.